The Treasurer is right to have pushed for Australia to join the Asian Infrastructure Investment Bank

29 June 2015

Despite the absence of the United States and Japan, the Treasurer Joe Hockey is right to push for Australia to be intimately involved in the establishment of the Asian Infrastructure Investment Bank (AIIB).

We will join with some 57 other countries to be involved in building and rebuilding roads, railways, water treatment works, bridges, and harbours throughout our region.

As a founding member of the AIIB we have grasped the opportunity to influence the Bank's design. Indications are that Australia’s role has helped ensure the AIIB’s governance is based on best practice principles - all members will be directly involved in the Bank’s direction and decision making “in an open and transparent manner”.

It is planned that Australia will contribute around A$930 million to the AIIB over five years, making us the sixth largest shareholder. The AIIB will have paid-in capital of US$20 billion ($A25.2 billion) with total authorised capital of US$100 billion (A$126.2 billion).

We know from the Asian Century White Paper that the need for infrastructure investment in Asia's emerging economies is vast. Around US$8 trillion is needed to fund the region’s estimated infrastructure gap in just the current decade. 

The connection between infrastructure and trade is a critical one for Australia. Infrastructure is a key enabler for more efficient trade within our region. Australian companies are competing on a global scale for a slice of the Asian market – we must take every opportunity to help our businesses deliver goods and services faster and at lower costs.

We should not obsess, like some in Washington, about the AIIB reflecting a desire of China to strengthen its global standing or advance its commercial interests more directly. As we have written it is in China’s best interests to allocate its huge stockpile of savings to productive use on projects in the region that will bear fruit for it in the long term. (See Australia's infrastructure deficit and China's investment appetite - The perfect match).

President Xi’s vision for the overland and maritime “one belt one road” programme is clearly a literal and symbolic reference to this idea.

China can no doubt deliver infrastructure projects on a monumental scale – fast trains, dams, railways and roads to name a few. For Australia and our neighbours this could also mean better and more secure trade routes and new opportunities for trade. 

Throughout Asia people are becoming wealthier. Consumption patterns are changing. The proportion of income spent on basics such as everyday food items is declining, while spending on education, high quality foods, services and tourism is rising sharply.

Most developing countries in Asia are also undergoing massive demographic shift. A new generation of business and government leaders is emerging. Educated and tech-savvy they are looking for more efficient, and often cheaper, ways to do business. (See From Facebook friends to tomorrow’s leaders: Understanding the impact of demographic change in Asia).

Australia has much to offer Asia’s new consumers and businesses, and better infrastructure will help us capitalise on the opportunities opening to our north.

A seat at the AIIB table will ensure that Australia is not a bystander to the plethora of possibilities the AIIB presents. It will enable us to directly shape the institutional foundations of the AIIB and build connections which will be of use more broadly. Our presence in the AIIB will provide Australia an opportunity to build on the platforms it has already created, included extracting the synergies and opportunities from the AIIB for the G20 Infrastructure Hub. 

The content of this publication is for reference purposes only. It is current at the date of publication. This content does not constitute legal advice and should not be relied upon as such. Legal advice about your specific circumstances should always be obtained before taking any action based on this publication.

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Andrew Lumsden

Partner. Sydney
+61 2 9210 6385


Lizzie Knight

Partner. Sydney
+61 2 9210 6437